What Does the Right of Redemption Mean in Real Estate?

California has one of the highest foreclosure rates nationwide.

Losing your home in foreclosure is scary, but the right of redemption gives a homeowner time to buy their home back. Equitable redemption is available nationwide and lets homeowners in default pay off their past due mortgage plus interest and penalties before foreclosure begins. California and other states have passed statutory redemption laws, which allow homeowners to buy their home back after a foreclosure sale for the sales price plus interest and penalties.

Foreclosure Actions

There are two types of foreclosure actions that a lender can take against a homeowner who has defaulted on their mortgage: non-judicial and judicial. Non-judicial foreclosures are common in California. The deed of trust, or mortgage instrument, contains power of sale language that gives the trustee representing the lender the right to sell the property at auction. The downside, however, is the homeowner forfeits the right of redemption. While less commonly used, a judicial foreclosure, which involves going through the court system to foreclose on the property, allows a homeowner to keep the redemption rights.

Statutory Redemption

Statutory redemption laws work if the winning bidder at the foreclosure sale bids a fair price for the home; otherwise, the former owner may not be able to redeem the property. Under California law, the courts set the redemption period, which cannot exceed one year. The former homeowner can stay in the home during this time. At the end of the redemption period, if the former homeowner cannot exercise the right of redemption, the new owners have the right to evict them. The former homeowner also can opt to waive the right of redemption after the foreclosure sale.

Deficiency Judgment

In a judicial foreclosure, if your former home sells for less than what you owe, your lender can sue you for the difference and collect a deficiency judgment against you. The court sets the deficiency amount, which is based on the fair market value of your former home at the time of the foreclosure sale. Under California law, you have the right of redemption as long as your lender does not waive its right to collect a deficiency judgment against you. If your lender waives its rights, you lose the statutory right of redemption and all rights to your former home.

Chilling Effect

In states like California with statutory redemption laws, the foreclosed property has the right of redemption attached to it. At auction, bidders may either choose not to bid on the property or drive the price up in an attempt to keep the former homeowner from buying it back at the end of the redemption period. Unless the former owner waives their redemption rights, the new owner has to wait for the redemption period to expire before they own the title to the property.